Analysts at Peel Hunt have emerged from a visit to Amazon’s Tilbury operations feeling even more positive about Ocado (OCDO), the grocery distribution technology firm. They imply that Ocado has an advantage over the US retail giant.
In a bullish note to clients sending shares in the Hatfield-headquartered concern 17.5p higher to £13.63 – which means the stock is now up a stunning 73% year-to-date – Peel Hunt insists Ocado has ‘solved the online food retail conundrum for itself and is now delivering it for clients around the world’ and believes management ‘has the vision to take Ocado’s success today to become the Microsoft of Retail tomorrow’.
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Tilbury is US tech titan Amazon’s ninth generation warehouse and the Jeff Bezos-steered disruptor’s largest and most technologically advanced in Europe. Yet Peel Hunt analysts James Lockyer and Damindu Jayaweera came away from the site feeling underwhelmed.
‘Lower utilisation rates, miles of conveyor belts, and robots that travel at only a fast walking pace – sometimes queuing up on the warehouse floor too. Moreover, in a recent interview, the director of Amazon Robotics Fulfilment wasn’t that inspiring about his robotic ambitions,’ they say.
Surprisingly, the pair point out that Ocado’s robots are three times as fast as those at Amazon’s most modern warehouse.
‘This, amongst other things we noticed, gives us confidence in Ocado’s moat, even to Amazon at this point’, add Lockyer and Jayaweera, explaining that Ocado is upping its game by investing in dexterous robotic arms too.
Ocado’s shares have more than quintupled over the past 18 months following its transformation from a pure-play online supermarket into an AI and robotics-driven business licensing out its patented online food retail technology to international blue chip retailers including Kroger, Sobey’s, Casino, Coles and also Marks & Spencer (MKS).
Marks & Spencer is acquiring half of Ocado.com, with both halves being placed in a joint venture, via a deal that will bring £750m cash into the Ocado coffers and reduce its exposure to the uncertain UK consumer environment.
OCADO’S ON A ROLL
‘As the deals roll in, we believe Ocado’s supplier power grows, with the next brand itching to get on board before a competitor does,’ says Peel Hunt. ‘The platform is agnostic, allowing it to expand into real time delivery with Zoom (its one-hour delivery service), non-food retail, and even outside retail in the future.’
Ocado bulls are currently in the ascendancy and short-sellers have been carried out head first, although bears would remind investors of the old adage that ‘turnover is vanity and profit is sanity’.
For the year to November 2019, Peel Hunt forecasts a widening of Ocado’s pre-tax losses from £45.5m to £79.3m on £1.78bn sales (2018: £1.59bn), with pre-tax deficits of £55.4m and £24.6m for 2020 and 2021 respectively.